Abstract
In this paper, we analyse the dynamic cyclical co-movements between oil prices and macroeconomic leading variables in Saudi Arabia within a time-frequency approach. Specifically, we check the relevance of the cyclicality of non-oil GDP, public expenditure, and trade balance with oil price cycles. To overcome the deficiency of traditional econometric methods and standard wavelet correlation methods, our study uses partial and multiple wavelet coherence for an annual data set covering the period 1970–2016. Our findings unveil a high level of coherence between the four variables and these linkages are changing through time scales and frequency bands. Specifically, we uncover pro-cyclical fiscal policy through a negative correlation between non-oil balance and oil prices and via a positive correlation between government spending and changes in oil prices. Our results offer several conspicuous implications and operational recommendations for Saudi policymakers and regulators, especially when elaborating the Government budget.